Why when Monetary Velocity Falls so Does Productivity

An important omission from my last post, where I argued

labour savings in one branch of the economy are – over time – precisely matched by purchases of products with marginally increasing use of labour, until the labour saved in one branch is mopped up by new less productive labour hired from the profits made….

a capitalist in receiving profits and now eventually deciding to spend spends the marginal increment of profits on a consumption good on his or her demand schedule that was previously considered less desirable than their previous purchase.  I…At the margin an extra increment of spending power translates to spending on an additional good which was previously not purchased because its costs were too high because of its more labour intensive production.  Consumption therefore takes place along a demand schedule with a declining marginal productivity of labour.

However in between the point in time of innovation created profits and the spending of those profits there may be innovation in the production of those goods.

This is why productivity rarely falls to zero.  An apparent rise or all in productivity may simply be an artifact of falls or rises in monetary velocity.


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